Chile: Growth and unemployment: the worst is yet to come

Summary

In general, what we see in the data is a negative correlation between growth and unemployment, known as Okun’s Law. Strictly speaking, this is not exactly a law, but rather a statistical ratio and as such is subject to revision in the light of different changes in the economy. However, it is a very useful and simple relationship, insofar as it includes just two variables which are important at a macroeconomic level. In this paper will corroborate the relationship between unemployment and growth in Chile, and particularly whether it is possible to see a stable negative correlation between the two. We will also analyse whether the current scenario of low growth with low unemployment is sustainable over time.

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